Sunday, January 27, 2013

Buying AAPL: Catching a Falling Knife, or a Buying Opportunity?

By now it is clear Apple has fallen off a cliff after a parabolic rise. History says the fall will at least retrace the parabolic rise. We saw this recently with Crude Oil rising over several years into a parabolical peak at $147 (cash price), then falling in six months to $31 before bottoming. We saw this in 2000 with a bunch of tech stocks, and in particular the leader at the time, Microsoft. Is AAPL, the leader in 2012, replicating MSFT, the leader in 2000? The charts are eerily similar (courtesy Bespoke):

History also says a bull trap will emerge on the way down, a major bounce where many think they have caught the bottom, but when it reverses, they instead get sliced & diced as if grabbing a falling knife. Same bulltrap happened to crude on its rapid drop. The AAPL false bottom may have already occurred around $500 (see chart). After bouncing at that level, it has hit an airpocket and now seems on a bottomless journey down. A scan of the punditry finds some expectation for a bottom at $410, and I expect that level to catch some bids, but a look at the chart (red line) shows no support level until AAPL gets to the start of the parabolic spike up, at around $350.

Apple is a quality company, and its recent miss seem to be more an anomaly of comparing a 14 week quarter a year ago with the 13 week quarter that recently ended than a sudden break in Apple's trajectory. Hence, at some point, a bottom will be found, and a buying opportunity discovered; the bigger question is whether, like Microsoft's lost decade, will Apple will grow quite strongly but never regain the recent stock highs? Maybe there is an app for that ...

Todd, yes, but the other sideways markets ended on a low or triangle end (1949) not on a high! You'd have to believe 2009 was the cycle low. It came a bit early then in time (1966-82 = 16 yrs, 1929-49= 20 yrs). If 2009 is the low, like 1932, expect continued sideways until 2017-2020).

AAPL is approaching support at 400, which is 50% of the move since 2009. Since there really isn't any divergence yet on a monthly chart, the possibility of a triangle fourth should be considered, in which case the buying opportunity won't be until next year..

So far the drop has been a measured move down with the second leg equaling the first in price & time. It's channeling down pretty nicely. There is RSI & EWO divergence. I think you still have to consider that this drop may be a corrective zigzag.
It's not unreasonable to think the gap down a couple weeks ago was the third wave of the second leg. Figure that it could climb halfway up that gap or so then drop for the 5th wave. If 5 = 1, then your 400 does look like a good stopping point just at the lower trendline, ending later this month/early Mar.

I thought the Financial Forcast and STU that came out Friday were excellent.
Agree totally with the alt count on the Dow daily. Can't see us kissing the bottom trend line again before we head back up, but 3 to 5 percent looks reasonable to me.
Probably a little more on the ndx so aapl could hit Virgil's 400.

"As a sign of how warped this celebration has become, Gordon Chang appeared on CNBC on Friday, noting the troubling difference between exports reported by China to other countries and imports reported by other countries from China, as well as the inconsistency between low cargo numbers and high reported export numbers. In response, the CNBC anchor said – and I am not making this up – “You know Gordon, I agree with you, but let me take a different tact on this, alright? Let’s say you believe that China is making up the numbers. But if the stock market there keeps going up because of it, and you believe the government will keep priming the numbers, isn’t that sort of a reason to bet on the Chinese stock market?”"

So.....
Picture yourself in a boat on a river
With tangerine trees and marshmallow skies
Somebody calls you, you answer quite slowly
The girl with kaleidoscope eyes.

On the plus side, someone is finally refering to real estate over the last 30 years as a fad.